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Concept explainers
1.
Compute the total estimated gross profit on the contracts.
1.
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Explanation of Solution
Contract:
Contract is an agreement among two parties or more parties which includes enforceable obligations and rights. A contract can be written, oral or implied by ordinary business practices.
Calculate the total estimated gross profit:
As of December 31 | |||
2019 | 2020 | 2021 | |
Contract Price | $20,000,000 | $20,000,000 | $20,000,000 |
Costs incurred to date | $8,000,000 | $16,000,000 | $18,000,000 |
Estimated costs to complete | $6,000,000 | $3,000,000 | $0 |
Total costs estimated to date | $14,000,000 | $19,000,000 | $18,000,000 |
Estimated gross profit | $6,000,000 | $1,000,000 | $2,000,000 |
Table (1)
2.
Compute the percentage of completion for 2019, 2020 and 2021.
2.
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Explanation of Solution
Compute the percentage of completion for 2019:
Therefore, the percentage of completion for 2019 is 57.1%.
Compute the percentage of completion for 2020:
Therefore, the percentage of completion for 2020 is 84.2%.
Compute the percentage of completion for 2021:
Therefore, the percentage of completion for 2021 is 100%.
3.
Compute the percentage of completion for 2019, 2020 and 2021.
3.
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Explanation of Solution
Compute the amount of income recognized for 2019:
Therefore, the amount of income recognized during 2019 is $3,426,000.
Compute the amount of income recognized for 2020:
Therefore, the amount of income recognized during 2020 is ($2,584,000).
Compute the amount of income recognized for 2021:
Therefore, the amount of income recognized during 2021 is $1,158,000.
4.
Journalize entries related to the project for 3 years.
4.
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Explanation of Solution
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
- To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
- To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains.
Prepare journal entries:
Date | Account titles and explanation | Debit ($) | Credit ($) |
2019 | Construction in progress (inventory) | 8,000,000 | |
Accounts payable, cash, salaries, payables etc. | 8,000,000 | ||
(To record costs of construction) | |||
Construction expense | 8,000,000 | ||
Construction in progress (Refer to requirement 3) | 3,426,000 | ||
Construction revenue | 11,426,000 | ||
(To record gross profit) | |||
8,000,000 | |||
Partial billings | 8,000,000 | ||
To record partial billings) | |||
Cash | 6,000,000 | ||
Accounts receivable | 6,000,000 | ||
(To record collections) | |||
2020 | Construction in progress (inventory) | 8,000,000 | |
Accounts payable, cash, salaries, payables etc. | 8,000,000 | ||
(To record costs of construction) | |||
Construction expense | 8,000,000 | ||
Construction in progress (Refer to requirement 3) | 2,584,000 | ||
Construction revenue | 5,416,000 | ||
(To record gross profit) | |||
Accounts receivable | 8,000,000 | ||
Partial billings | 8,000,000 | ||
To record partial billings) | |||
Cash | 6,000,000 | ||
Accounts receivable | 6,000,000 | ||
(To record collections) | |||
2021 | Construction in progress (inventory) | 2,000,000 | |
Accounts payable, cash, salaries, payables etc. | 2,000,000 | ||
(To record costs of construction) | |||
Construction expense | 2,000,000 | ||
Construction in progress (Refer to requirement 3) | 1,158,000 | ||
Construction revenue | 3,158,000 | ||
(To record gross profit) | |||
Accounts receivable | 4,000,000 | ||
Partial billings | 4,000,000 | ||
To record partial billings) | |||
Cash | 6,000,000 | ||
Accounts receivable | 6,000,000 | ||
(To record collections) | |||
Partial billings | 20,000,000 | ||
Construction in progress | 20,000,000 | ||
(To record and to close partial billings) |
Table (2)
5.
Explain the manner in which the project will be carried on the
5.
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Explanation of Solution
The manner in which the project is carried on the balance sheet for the year 2019, 2020 and 2021 is explained below:
As of December 31, | |||
Current assets | 2019 | 2020 | 2021 |
Accounts receivable | $2,000,000 | $4,000,000 | $2,000,000 |
Construction in progress | $11,426,000 | $16,842,000 | |
Less: Partial billings | $8,000,000 | $16,000,000 | |
Construction in progress in excess of billings | $3,426,000 | $842,000 |
Table (3)
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Chapter 17 Solutions
Intermediate Accounting: Reporting And Analysis
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
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